Daily analysis 26.02.2014

We open another day in the limits of centre areas of 1.37 on EUR/USD. Record weakness of Ukrainian currency – one dollar is now over 10 hryvnas. European Commission's economic projections are an argument for decrease of money rates by ECB? Zloty remains stable and most transactions are made in areas of 4.15 per Euro.

16.00 CET: Sale of new houses in USA in January (estimations on level of 400 thousands; data were seasonally equalled, annualized).

Data. Over 10 hryvnias per dollar. Turkey

At the beginning it is worth to talk over yesterday's afternoon behaviour of EUR/USD. Macroeconomic data planned on Tuesday, were not that important. Thus their influence on the market should be very limited. In case of Case-Shiller real estates prices' index publication, the reaction would be unnoticed. It would be a logical movement for the investors, especially that the report was closed to the market's consensus (growth on the level of 13.3% was expected and the actual data showed +13.4%). We observed much more variabilities at 16.00 (CET), when publication of consumer's sentiment index appeared on the market. It appeared that the reading of index prepared by Conference Board, was below prognoses (78.1 points vs 80.1 consensus). It is worth noticing that these values are close to a few years' records and they do not announce sentiments breakdown. The fact that in the same time we had a significant enforcement of the dollar (despite the generally applicable opinion about the weaker economic results on the other side of the ocean) is far more interesting. When everyone thought that we can go below 1.3700, the market made up for the losses and we returned to the levels from before the publication. It shows that some players wanted to cause the belief, that a change of leading topic on the market can occur and e.g. give some traders an impression, that weak readings should increase aversion to risk and therefore strengthen the American currency. As following hours showed, this trick did not work and Wednesday morning began with centre levels of 1.3750.

The situation of the Ukrainian hryvnia changes very quickly. It clearly shows that the bank controls the situation in decreasing degree as the changes are really dramatic. We opened the session in areas of the level of 9.70 hryvnias per dollar. At certain moment we descended to 9.25 (rather because of small ratio), however, when the trade in Europe started for good we crossed the limit of 10 hryvnias per dollar. At 10.35 (CET) we reached the value of 10.25 on USD/UAH pair (according to Bloomberg data). Bloomberg also announced that 7% of funds located in banks could be withdrawn during last week. If this trend holds on, it could mean much bigger problems for national financial system than further intense devaluation of hryvnia. The political matters, though, appear to be a bit more optimistic. According to „Financial Times”, Russia slightly eases its attitude towards their neighbour. “FT” cites the statement of Russian Federation's Minister of Foreign Affairs, who claims that “forcing Ukraine to choose a solution according to the “either with us or against us” rule is dangerous and unproductive”. Lavrov adds that “making Ukraine a part of the European family is also in our business”. Moscow's possible participation in international help for Ukraine is still a maybe. This help could appear in e.g. keeping the preferential gas prices for our Eastern neighbour. Getting back to hryvnia's rate, it is worth to notice that within a month the Ukrainian currency weakened by 20% and is getting closer the levels of limit, which are indicated by foreign banks' economists. However panic is seldom considered in such models. If such quick depreciation will still be observed, not only the wallet investors can withdraw faster from the local market, but the significant part of the society will exchange hryvnias for dollars or Euro (during last 4 years part of citizens got used to keeping their life savings in UAH as the USD rate was very stable and the interests were much higher than those offered in foreign currencies), additionally increasing the pressure on local currency.

Getting back to international market, it is worth paying attention to yesterday's economic projections of European Commission. It assumes that inflation level in 2014 will reach 1.0%, which is 0.1 percent more than December's ECB estimations (an argument for monetary policy's easing, which is negative for euro). On the other hand, the Commission forecasts are slightly higher for economic growth for this year than these of central bank (+1.2% vs 1.1%), which minimally decreases the chances for ECB reactions. However, as Mario Draghi marked repeatedly, the data on inflation for February (publication on Friday; also tomorrow's data on Germany's CPI can cast some light on Friday's reading) and economic projections presented during March summit (the market will find out about them after making the decision on rates) will be crucial in this matter.

In conclusion, we constantly have a clear hesitation on EUR/USD. Yesterday a part of players tried to take advantage of the occasion to cause a clear reduction of prices on the main currency pair. However, they did not succeed. Today's data on new houses sale in USA can also cast some light on general view of the market. If they are much worse than the prognoses, we should witness weakening of “the buck”, in spite of yesterday's extravagance. We will have to wait for more crucial decisions, probably until Friday's data on inflation from Euro Zone.

Very calm

Zloty behaves as if it was fully controlled by the central bank (and of course it is not). Neither the dramatic situation behind the eastern boarder, nor another negative information from Turkey cannot clearly undermine it. Its stabilisation in these hard times can mean that when the situation in that region will improve (Ukraine will form a government and get a multi billion dose of cash and Ankara will fix their corruption scandal), we can expect the enforcement of national currency. The PLN appreciation would be also enforced by a clear announcement of MPC about tightening the monetary policy (as soon as in March or April). Further increases of EUR/USD and another records of foreign exchange markets would be also positive events for the zloty.

In the perspective of following hours, we should move close to the level of 4.15 on EUR/PLN. Similar situation should concern the Swiss franc, where the base scenario are transactions in limits of 3.40-3.41 PLN per one unit of Swiss currency.

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